Priceline's Lessons for Uber, Airbnb and Other Unicorns

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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On March 30, 1999, an 11-month-old, money-losing Internet company called Priceline.com went public, to the great excitement of investors. By the close of trading the stock price had more than quadrupled and the company was, as Saul Hansell put it in the New York Times the next day, “worth more than United Airlines, Continental Airlines and Northwest Airlines combined.”

For the next year or so, Priceline.com was one of the most-cited examples of, depending on one’s inclination, either the import or insanity of the Internet boom. Its ubiquitous TV ads featuring William Shatner also got lots of attention, as did founder Jay Walker’s claims that the company’s name-your-price model would “reinvent the environmental DNA” of business. But it was its market valuation that drove the fascination, and after the stock price collapsed from a high of $974.25 a share in April 1999 to $6.75 in December 2000, people mostly stopped talking about Priceline.com.

I was reminded of all this history when somebody mentioned to me that Uber now has a bigger valuation than General Motors, and Airbnb bigger than Marriott International. I then did a little looking of my own and found another fun one: Snapchat is now worth about the same, according to investors, as Viacom. There’s one complication -- these are private valuations that we’re talking about for Uber, Airbnb and Snapchat, and as Bloomberg’s Sarah Frier and Eric Newcomer explained back in March, the math on them can be a little dodgy.

The basic point stands, though. Money-losing startups are being given valuations similar to those of long-established giants, in some cases the very giants they aim to disrupt. It’s just like Priceline.com in 1999. And, just as in 1999, some people see this as an indication of big economic shifts to come and others see it as evidence of a bubble.

So, what ended up happening to Priceline.com? The company has changed its name to the Priceline Group, and the Priceline.com name-your-own-price site is now only a tiny part of its business (more on that in a moment). But Priceline Group has actually been doing great lately. So great that its stock market capitalization is now $62 billion -- more than United Continental Holdings (they merged in 2010) and Delta Air Lines (which bought Northwest in 2008) combined.

So in that sense the Priceline.com optimists of 1999 were right. The company wasn’t a flash in the pan. It has survived and thrived, while Delta, United, Northwest, US Airways and American Airlines all declared bankruptcy at some point during the past 16 years.

On the other hand, if you bought Priceline stock at its peak on April 30, 1999, you really haven’t made much money. Here’s its performance since then compared with that of the Standard & Poor’s 500 Index and the one major U.S. airline that has survived intact since 1999, Southwest.

This is less-reassuring news for the investors pouring money into later rounds at Uber, Airbnb and Snapchat. Priceline did become perhaps the most important player in the global travel business, but that didn’t make it a good investment if you bought shares in the spring of 1999.

Also, the Priceline that exists today doesn’t have much at all to do with the vision that founder Walker offered in 1999. Walker left the company in late 2000. That same year, Jeffery Boyd, lured by the prospect of dot-com riches, had left his job as general counsel at Oxford Health Plans to take the same position at Priceline (the two companies were headquartered in the same building in Norwalk, Connecticut). Boyd had to wait a while for the riches, but his experience was as a dealmaker, and after he became chief executive officer in 2002 he started making deals in the depressed market for Internet companies. Priceline Group now includes the travel search engine KAYAK, the accommodation booking service Agoda and the restaurant reservation-site OpenTable. Boyd, meanwhile, gave up the CEO job in 2013 but has stayed on as chairman.

His most important acquisition, by far, was of Booking.com, a hotel-reservation site founded in the Netherlands in 1996, two years before Priceline. Booking.com has caused some head-scratching among U.S. TV viewers (this U.S. TV viewer, at least) since it started running ads here two years ago with the tagline, “Planet Earth’s No. 1 Accommodation Site.” Booking dot who? But in Europe it has long been No. 1 and, as Jon Birger put it in a 2012 Fortune profile of Boyd, “Europeans typically have twice as many vacation days as Americans, and unlike us, they tend to take all of them.”

Birger also quoted Thomas White, an analyst at Macquarie Securities, saying that, “It would be tough to argue that there’s been a better acquisition in Internet history.” Priceline Group doesn’t break out revenue or earnings by brand, but it said in its most recent annual report that it got 94 percent of its consolidated operating income from its international business, “the substantial majority of which is generated by Booking.com.” Overall, net income was $2.4 billion in 2014 -- less than Delta’s $4 billion, but without the risk of huge losses when travel slows (Delta lost $8.9 billion in 2008; Priceline turned a $182 million profit).

Priceline acquired Bookings NV, Booking.com’s parent company, in July 2005, for 110 million euros ($133 million at the time) in cash. How has the stock done since then? Amazing! This time I’ve used Google, which went public in 2004, as the comparison stock. It didn’t stand a chance against Priceline.

What are we to take from all of this? First, that the huge valuations being attached to today’s leading digital startups probably aren’t all crazy. Second, that those valuations may make it hard for late-round private investors, or the rest of us after the eventual IPOs, to make much money off the insight that Uber or Airbnb or Snapchat is in fact built to last. And finally, the big lesson for these companies may be to set aside a bunch of that investor cash for when times get tough -- and maybe hire a CEO, or at least a general counsel, who is really good at making acquisitions.

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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